In testimony before the Joint Economic Committee of Congress, Yellen said she expects the economy to grow faster this year, but noted concerns about a slowdown in the housing market. She said a “high degree” of accommodation is warranted, indicating a tilt that many Fed-watchers took to be dovish.

Reuters

U.S. Federal Reserve Chair Janet Yellen.

“I did get a sense that she’s comfortable with how the data is coming out right now,” said George Rusnak, national director of fixed income at Wells Fargo Private Bank. He added that Yellen’s outlook on when to raise short-term interest rates, “still seems to be intact. It’s a little bit steady as goes.”

After the testimony, the benchmark 10-year Treasury note
US:10_YEAR
yield, which rises as prices fall, was down half a basis point on the day at 2.588%, near its lowest of the year, despite climbing to an intraday high of 2.615%, according to Tradeweb. The yield fell for its fifth day in six sessions.

The 30-year bond
US:30_YEAR
yield rose 2 basis points to 3.402%, and the 5-year note
US:5_YEAR
yield fell 3 basis points to 1.650%. The differential between them widened, in what’s known as a steepening yield curve, a reversal from trading over the past week.

Yellen’s testimony, “was quite dovish to me considering the data we have seen over the last week or two,” said Sean Murphy, senior Treasurys trader at Société Générale. “I think that kind of spooked some guys that were set up along the curve.”

Long-term Treasury yields had been rallying in recent sessions, extending strong gains for most of the year thus far. The gains gave voice to contrarians who believe the economic outlook doesn’t warrant the rising-rate environment once thought to be inevitable.

10-year auction

The Treasury Department sold $24 billion in 10-year notes on Wednesday at a yield of 2.612%, marking the lowest stop-out rate since last June. This auction yield is used as a rate upon which federal student loans are pegged for the coming year. Stafford student loans for undergraduates will rise to 4.66%, while loans for graduate students will rise to 6.21%.

Auction demand from non-dealers came in strong. Indirect bidders, which are often taken as a proxy of foreign demand, took down 49.3% of the sale, compared with 46.8% in the last six auctions. Direct buyers, which often include domestic money managers, bought 21.6% of the sale, compared with 17.0% in recent auctions.

Bidders offered to buy 2.63 times the amount of debt for sale, compared with 2.70 times in past auctions.

Treasury prices fell earlier as Russian President Vladimir Putin said he is willing to discuss an end to the Ukraine crisis with Europe’s Organization for Security and Cooperation. Eastern Ukraine has been the location of fighting between its residents and pro-Russian separatists. Meanwhile, more fighting broke out on Wednesday, though reports indicated Russian troops were pulling back to the borders.

The bond market had little reaction to data on Wednesday that showed a slowdown in American business productivity. The gauge fell by a 1.7% annual rate during the first quarter of the year. Economists polled by MarketWatch had expected a 1.1% drop.

Late on Tuesday, outgoing Federal Reserve governor gave a speech suggesting that the wide divergence of opinions among market participants about Fed policy can cause the market to stop behaving, leading to events like the spike in bond yields last summer. The beliefs of optimistic investors, who take large positions based on their viewpoints, is a key factor driving sharp changes in asset prices.

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